NYSE’s Switch to For-Profit Status Got Richard Grasso Off the Hook
One of the first instances to arouse public ire about nonprofit executives’ compensation came to an end yesterday when a New York appeals court dismissed the state’s case against Richard Grasso, the former chairman of the New York Stock Exchange.
Grasso had resigned his post after the news about his bloated 2003 compensation package became public:
According to court documents, Grasso’s base salary from 1995 through 2002 was roughly $1.4 million, with bonuses that escalated from $900,000 in 1995 to $10.6 million in 2002. His 2003 agreement provided a lump sum of $139.5 million, with an additional $48 million payable over four years.
State attorneys argued that the NYSE compensation committee was hand-picked by Grasso and ignored a benchmark system in calculating his pay. They also noted several NYSE board members expressed disapproval of the 2003 package, which was left off a meeting agenda, then brought up and approved at the last minute when opponents were missing and others had no chance to review the details in advance.
Interestingly, the reason cited by the Appellate Division of State Supreme Court in throwing out the claims against Grasso was NYSE’s shift in 2005 from nonprofit to for-profit status, since the original case was brought under New York’s Not-for-Profit Corporation Law.
The case may be over, and, indeed, Grasso may have “won,” but there are still lessons to be gleaned from it by nonprofits. First and foremost is the aching need for transparency. Board members should not be kept in the dark about such critical matters as executive compensation. It’s also worth nothing that the Appellate Division, in tossing out the state’s claims, did not do so on the merits (or lack thereof) of the case but on a technicality. And so while Grasso’s actions haven’t been deemed illegal, they certainly retain a strong stench of being unethical. | 501(c)
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POSTED IN: Boards, Ethics, For-profit, HR, Legal issues
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